Abstract
Traditionally, the duty of loyalty demands that fiduciaries not pursue business opportunities that could benefit their own companies. Several states in the United States now allow companies to waive this duty, which increases the likelihood of an agency problem: that disloyal managers will appropriate business opportunities. Using a difference-in-differences research design, we find that the firms covered by corporate opportunity waiver (COW) laws shift their debt structure to bank debt relative to public debt. We infer from this finding that firms borrow relatively more from lenders that can better monitor the aforementioned agency problem. We also find that the shift is more pronounced for firms with more investment opportunities, those with CEOs who are more likely to appropriate the firm’s business opportunities, and those with weaker shareholder monitoring. With regard to equity market performance, we find that bank debt mitigates the adverse effect of COW adoption on shareholder wealth, and that the stock market reacts positively to COW-covered firms’ bank debt issuances.
Original language | English |
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Number of pages | 51 |
Publication status | Published - 6 Jul 2024 |
Event | 2024 Financial Management Association (FMA) Asia/ Pacific Conference - Yonsei University, Seoul, Korea, Republic of Duration: 4 Jul 2024 → 6 Jul 2024 https://www.fma.org/2024Seoul https://www.fmaconferences.org/Seoul/SeoulProgram.htm |
Conference
Conference | 2024 Financial Management Association (FMA) Asia/ Pacific Conference |
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Country/Territory | Korea, Republic of |
City | Seoul |
Period | 4/07/24 → 6/07/24 |
Internet address |
User-Defined Keywords
- corporate opportunity waivers
- fiduciary duty
- monitoring
- debt structure
- loan contracting